Fixed
Rate Mortgage
Rates
of interest on these loans are guaranteed not to change
for a specified period, typically the first three to five
years of the mortgage.
Capped
Rate Mortgage
With
this type of loan, the interest rate is guaranteed not
to exceed a fixed level during the capped-rate period.
The advantage is that it can go down if rates are cut.
Repayment
Methods
Repayment
Mortgage
Also
known as capital and interest mortgages because part of
the monthly payments gradually pays off the loan while
the remainder covers the interest on the amount outstanding.
Offset
Mortgage
These
loans are taken out in conjunction with a current
account or savings account. Regular mortgage repayments
are required but at the same time the cash in the other
accounts helps to reduce the loan, thereby saving interest.
This can help to speed up repayment of the mortgage.
Interest
Only Mortgage
As
its name implies, the borrower pays the interest only
on the loan during the mortgage term so the capital remains
outstanding. Payments may also be made into a savings
scheme, such as an Individual
Savings Account, to repay the capital at the end of
the term. Sometimes the loan is repaid out of the sale
proceeds of the property.
Endowment
Mortgage
This
is where an interest-only loan is combined with a life
assurance with-profits policy intended to pay out
a sufficient sum to clear the mortgage at the end of the
term. But endowment policy payouts are not guaranteed
and many are currently expected to produce shortfalls.
What
You Need To Look Out For:
Arrangement
Fees
Most
lenders nowadays charge you for the work involved in setting
up a mortgage or to reserve a loan at a particular rate.
The amounts can vary considerably between lenders. Paying
more doesnt always get you a better deal.
High
Lending Charge
If
you are borrowing more than 90 per cent of the property
value, check to see whether you will be charged an extra
fee. This is to protect the lender in case you fail to
keep up the payments, but not all of them make this charge.
Insurance
Some
lenders will offer you a lower mortgage rate if you buy
their home
insurance products. They will also encourage you to
take out their mortgage
payment protection policy. It is usually better to
shop around for the cheapest insurance deal.
Early
Redemption Penalties
With
mortgage special offers, fixed rate deals, etc, you will
normally be charged a penalty if you pay off your loan
within the offer period. In particular, try to avoid those
loans with redemption penalties that extend beyond the
end of the offer period as you will be stuck on the lenders
standard variable rate.
Initial
Disclosure Documents And Key Facts Illustration
Initial
disclosure documents (IDDs) spell out mortgage advisers
services, such as whether they can recommend products
from one company only, or are free to sell mortgages from
all lenders. Key facts illustrations (KFIs) are given
to borrowers when they apply for or are recommended a
mortgage.
These outline the mortgages cost over its term, repayments,
fees and an interest rate expressed as an annual percentage
rate (APR).
Annual
Percentage Rate
The
APR tells prospective customers the interest rate over
the life of the mortgage.
This factors in any initial offer rate and then the lenders
standard variable rate to which the mortgage reverts,
as well as the impact of fees. The APR in the key facts
document does not reflect that many mortgage borrowers
switch to better deals than the lenders standard variable
rate (SVR) after their initial offer expires. Neither
does it include the potential costs on leaving the mortgage,
such as administration fees and early repayment charges.
Standard
Variable Rate
Because
house prices are at a record high many people are now
thinking of their mortgages in the long term as well as
the upfront rate. For this reason it is worth knowing
what current customers are paying. It is highly unlikely
that when you come to the end of your fixed or discount
rate period you will be on the same SVR as current customers.
But you can use the information to see how the lender
compares
against others in the market.
Honest Johnny -
The Consumers' Advocate.
Article
Author: J. Copper
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